The Indian economic growth will not get much affected by the US slowdown or possible recession, said Sunil Subramaniam, MD & CEO, Sundaram Mutual in an interview with ET Now.
Subramaniam said inflation can come down in a demand-led economy like the US only by hiking interest rates.
"When interest rates are hiked, it is killing demand. So naturally, US economic growth will slow down and ultimately slip into a recession. from an Indian economic perspective, we are fairly decoupled from America because we do not have too many exports to America compared to the size of our GDP. The Indian economic growth will not get much affected by the US slowdown or possible recession," said Subramaniam.
Subramaniam said there is a strong possibility of a recession in the US and Europe because of the Ukraine war.
"Since the Russia-Ukraine conflict is not showing any signs of ending, there is no choice but for the US to slip into a recession before the inflation can be brought under control. So in my view, there is a 75% plus probability of a recession in America and the advanced economies like Europe," said Subramaniam.
Subramaniam further said, he believed that the Indian market is getting decoupled from the advanced world.
"I believe that we have entered a space where we are getting decoupled from the advanced world. The reason is that the US is suffering from an inflationary scenario, an attempt to kill demand and bring down inflation and a recession will lead to a drop in commodity prices and drop in oil prices," he said.
Subramaniam pointed out that India imports 83% of its oil and a significant amount of commodities so a fall in commodity prices will help India in multiple ways.
Another reason why the Indian market is decoupling from the American market is FII flows.
Subramaniam explained that between October and June, FIIs withdrew about ₹2.5 lakh crore from India but all of it did not go back to America.
"Some amount went from the commodity-exporting debt market of America as higher interest gives a good return there. Much of the money went to commodity-exporting markets like Brazil, away from India. Now with the deflationary and the recessionary scenario coming, that money is likely to re-shift from the commodity-exporting market to a commodity-importing market like India. FII flows will come and support the market," he said.
The Indian market has seen the strong support of domestic investors because in the Covid timeframe also, Indian per capita income grew but because of the lockdown, people did not have an avenue to spend the money. So their savings increased and more investment in the equity market was seen, Subramaniam pointed out.
"I believe that India is in a sweet spot both as an economy which will benefit from an advanced country recession and a market which will benefit from flows in a decreasing oil price scenario. India is in a very sweet spot at this point in time. I would feel that in the land of the blind, a one-eyed man is king and that is the status of India today," said Subramaniam.
Disclaimer: This article is based on an ET Now interview published by economctimes.com. The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
